The Pros and Cons of Buying A Condo

If you’re looking to level up from your rental but aren’t ready to move out to the ‘burbs, a condo might be your solution.

Condos aren’t a new concept in the real estate world, but are fast becoming an ideal solution for millennials, who are 52% more likely to buy a condo compared to their parents or grandparents, according to a study by Clever Real Estate.

What’s so great about condos? TL;DR: They’re just like apartment blocks, but managed by an association, and cheaper than buying a house, according to the National Association of Realtors (NAR).

But there are some downsides too.

Whether you’re already in the market or are just playing around with the idea, we know you have questions. So with the help of our Lemonade community, we’re bringing you a two-part series to help you along your buying journey.

Part one, below, will help you debate the pros and cons; part two is an in-depth look into how to actually buy one.

What is a condo, anyway?

A condominium, or condo, is pretty similar to a regular apartment unit. The difference is that all of the shared areas, like your backyard or patio, are owned and managed by an organization usually called a Homeowners Association (HOA).

So as a condo owner, you pay management to maintain the shared spaces in your building, but you’re in charge of your home.

Pros and cons of buying a condo

1. Management

Pro

Well-managed HOAs do a lot of heavy lifting for you. They’ll make sure there are enough reserve funds for emergency projects, which is a big relief for those who hate taking care of repairs or maintenance. And if you have amenities, they’ll also be taken care of by the board. You can also assume your shared outdoor space will look immaculate – and you don’t need to move a muscle.
HOAs also take care of:

1. Garbage removal or sewage issues
2. Insurance for your shared outside space (but you’ll still need condo insurance for your apartment and stuff)
3. Lawn services
4. Maintenance and repairs

Con

HOAs collect a ton of money, so it’s important to make sure you’re okay with these extra fees (more on that later). Plus, you’ll want your HOA to be properly organized to avoid disaster. Every HOA has 2 funds, an operating account (used for maintenance), and a reserve fund for long-term projects. If it’s badly managed, they could incorrectly allocate funds, forcing you to pay extra to finish repairs and projects.

2. Rules & Restrictions

Pro

With an HOA, you’ll have certain rules and restrictions when it comes to your living space. Some of them may be obvious, like keeping the music down, and picking up after your dog. On the up side, rules mean you never have to confront your neighbor about his weekly drumming sessions. It can also be a relief to have someone else set the rules, especially if you appreciate a peaceful and tranquil space.

Lemonader Matt N., a condo owner from New York, had to review the rules and sign off on them as part of the buying process. But for Matt, there was nothing too alarming on his contract:

“My contract mostly just enforced quiet night hours during the week, and ensured we don’t put stuff in the hallway that could block people.”

Con

Rules can feel like going back to school. The truth is, condo boards have a reputation for being difficult when it comes to having guests stay over, or requesting permission for any renovations or decorations.

For instance, if you want to install some green energy technology, you’ll need to ask your HOA for permission. If they say no — you’re out of luck.

3. Price

Pro

Condos tend to be cheaper than houses. A lower price means you’ll pay less money upfront, as well as a smaller monthly payment than you would for a housing mortgage, or in some cases for rent. Recent data from the National Association of Realtors shows a median sales price of $240,900 for single-family homes in the U.S, versus $225,100 for condos.

For Matt N., the price of his dream condo significantly contributed to his decision:

“I had to do the math a few times over to make sure I could afford the condo. Once I knew I could, I was more confident in making that big decision. Now my mortgage is only a little bit higher than what I was paying in rent every month.”

FYI– if you’ve heard rumors that condos depreciate in value faster than single-family homes, it’s a myth! According to the National Association of Realtors, condos have out-matched houses when it comes to appreciation. The average market value rose by 38.4% between 2012-2017 across the US, according to a 5-year study by Trulia.

Con

While condos might be slightly cheaper than single-family homes, the price isn’t the only thing you’ll have to factor in. Some HOA monthly fees can cost a few thousand dollars, depending on the location or amenities. According to Realtor, fees range from $200 to $300 per month, on average. 

Sid, a condo owner and Lemonader from San Francisco, advises paying attention to fees. He told us that,

“Sometimes, new units are attractively priced, and the $1500/month HOA fees are hidden in the fine print. Make sure you understand how much you’re going to be paying, what that fee covers, and whether the amount is justified for the value you’re getting.”

4. Community

Pro

If you love the idea of living in a supportive community that can offer social opportunities, a condo might be for you. It’s a great opportunity to meet friends, and set up movie nights, cookouts, and more. The nature of a complex encourages a close sense of community that isn’t felt in single-family homes. 

A community is usually safer, too. Some condo complexes have pretty sophisticated security systems installed, or 24-hour security guards. This can provide an additional level of safety and peace of mind for residents.

Con

Not everyone loves being close to their neighbors, especially when sound travels through walls. Condos are usually made up of large apartment blocks with individual units set up next to each other.

That means much less privacy, especially if your neighbor is a little nosey! You’ll also have to share basic things like your mailbox, garbage disposal, and storage facilities.

5. Amenities

Pro
One great perk of living in a condo is access to amenities. You might not be able to afford a house with a pool, but a condo might offer luxurious amenities like outdoor space, tennis courts, a large pool, or spa. Some complexes even employ on-site services, like a concierge, or housekeeping.

Sid was attracted to the large open spaces available in his condo:

“There are lots of open spaces with trees and benches, which is super rare to find within a private community in SF. Sometimes, when I want to enjoy the fresh air late at night, I know that it’s perfectly safe since it requires key access.” 

Con 

Amenities aren’t for everyone; if you’re not a tennis player, why be excited about a tennis court? Plus, note that luxurious amenities generally come with very expensive condos, so don’t expect to find a spa in every place you check out. 

Buying vs. renting 

When debating whether a condo is right for you, you’ll have likely heard asked, “is buying better than renting?’ Like all great questions, the answer isn’t simple. 

When it comes to price, there are lots of factors to consider when thinking about buying vs. renting. To buy, you’ll need a sizable downpayment, typically around 20% for a straightforward bank loan. Renting a condo will require less monthly payments than a mortgage, but when owning, you’ll also need to factor in property tax, condo insurance, and of course, HOA fees. 

And while your loan will stay more or less constant, rent prices might rise depending on the location of the property. 

At the end of the day, the answer really depends on whether you’re comfortable putting down a large sum of money, and how long you plan on staying in your home.

If you can afford to put a sizable amount on your downpayment, condos will appreciate over time and ultimately be a smarter financial investment than renting, according to the Mortgage Reports.

Bottom line 

Before deciding to buy, make sure to weigh the pros and cons to make sure it’s right for you. Condos aren’t for everyone, especially if you’re someone who likes their own space.

But if you are someone who loves a sense of community, amenities, and having someone else enforce the rules, a condo might just be for you.

And if you do decide to buy, check out our guide on how to buy a condo in 7 simple steps. After that, get covered with a Lemonade condo policy.

A few quick words, because we <3 our lawyers: This post is general in nature, and any statement in it doesn’t alter the terms, conditions, exclusions, or limitations of the policies issued, which differ according to your state of residence. You’re encouraged to discuss your specific circumstances with your own professional advisors. The purpose of this post is merely to provide you with info and insights you can use to make such discussions more productive! Naturally, all comments by, or references to, third parties represent their own views, and Lemonade assumes no responsibility for them. Coverage may not be available in all states. Please note that statements about coverages, policy management, claims processes, Giveback, and customer support apply to policies underwritten by Lemonade Insurance Company or Metromile Insurance Company, a Lemonade company, sold by Lemonade Insurance Agency, LLC.  The statements do not apply to policies underwritten by other carriers.